Second in a series on what the Big-Six banks’ aggressive expansion into the wealth management segment will mean for the industry.
Canada’s Big Six chartered banks all posted double-digit growth in their wealth management operations, with growth in the wealth segment outpacing that of their other business lines. As they expand aggressively, they are likely to push their advantage in scooping up young advisors; that may mean independents will have to come up with new ways to recruit.
“It’s difficult for me as an independent to attract young advisors to the industry simply because the financial institutions provide a decent salary and benefits to basically deal with their deposit holders,” said John Kason an advisor with Global Securities in Prince George, BC. “But they have a great training model and do a good job, so it’s who I steal advisors from.”
One of the lingering issues in the advisory segment has been that the profile of the average advisor has been greying. According to Advocis, an industry association, the average age of an advisor in Canada is 58. Given their scale, training programs and a compensation model that many new entrants find favorable, the banks have advantages in recruitment and can bring in new talent to grow their businesses.
Daniel Popescu, advisor and president of Harbourfront Wealth Management in Vancouver, said bringing new advisors in to non-bank channels will be a key challenge for non-bank operators as banks are able to bring in young bodies whom do not yet have a client base.
“They have economies of scale, one of the biggest costs in the industry is real estate, if you have 20,000 square feet and plunk a few bodies there, if these producers are producing $200,000 to $300,000 – which is considered low – then it’s profitable,” he said. “With the 50/50 split [on income in the bank channel], they can be paying guys who are doing little revenue, but it can be very profitable.”
Marc Lamontagne of Ryan Lamontagne in Ottawa says that his firm has responded by adopting the banks’ salary-based compensation model for junior advisors.
“In the independent channel not a lot of companies offer a salary; you come in get a desk and a phone and you have to go out and get clients. You’re basically self-employed; going that way you can make more money than you would at the banks, but in the earlier years you’re going to starve,” said Lamontagne.
“One of the things we’ve done to get around that that a couple of years ago we did start hiring a couple of associates on salary,” said Lamontagne, “but the idea is after a certain period of time you will then go into what is an ‘override’ a certain proportion of your salary will go to the company but you will essentially be self-employed.”
Wealth and advisory services are key performers for Canada’s banks, with growth in the segment outpacing that of their other businesses. In the wealth segment, BMO’s earnings doubled in the third quarter, RBC’s jumped 51%, CIBC’s rose 34%, National Bank saw a 33% gain and Scotia’s were up 18%. TD’s earnings for the segment slipped, but this was due to the bank’s reporting a combined “wealth and insurance” segment. With insurance stripped out, TD too saw double digit growth.
Big Six growth in wealth management points to more consolidation